Freedom, Justice, and Economics

your apartment building has a schedule for when each apartment’s occupants can use the laundry machines.

Most papers written by university students are seen by two people:  the student and her TA.  I think this should change radically:  the default should be that all student work is published to the web.  This would give students output to point their friends and family to; it would encourage students to take more pride in their written work; and it would promote discourse about class subjects among students who could read each other’s work.

The technology is there.  The students are more than talented and diligent enough that  we should have faith in them and their writing.  How could universal web publication be made to happen?

The FDIC insures all our checking and savings accounts, but they apparently don’t understand interest.  The Truth-in-Lending law they administer has been interpreted so that uniformly-reported “annual percentage rates” do not compound within each year.  The key portion of the regulations specifies instead that periodic rates should be multiplied by the number of periods in a year to get the APR.

For most types of consumer credit, including credit cards, this makes little or no difference or other regulations fix the problem.  One realm, however, where it leads to allowance of very misleading advertising, is the case of payday loans.  The typical payday loan carries a finance charge of 18% for a two-week loan.  The FDIC’s guidelines imply that this loan has an APR of 26*18% = 468%.

The more relevant calculation, which yields the true cost of this form of liquidity to consumers and is the right number for comparisons with most alternatives, is (1.18) to the 26th power minus 1, which yields a whopping 7295%.

and, to an astonishingly large extent, they will.  I can’t wait to see the whole paper.

We all make thousands of small decisions each day–whether to snooze a few extra minutes in the morning, how long a workout to have, whether to snack on carrots or cookies, whether to have decaf or regular coffee–that may affect our immediate and future well-being. We get some immediate feedback on some of those decisions (geez, those carrots were tasty), but detailed quantitative feedback on immediate and delayed effects is challenging.

Many such decisions have immediate, identifiable, bioelectrical and biochemical signatures. Imagine a device that automatically tracked and uploaded this information, standard metrics of body function (e.g., pulse, breathing rate, temperature, bp), and manually-inputted subjective measures of well-being (e.g., headache, euphoria, anxiety, zone) and productivity. Imagine using all this information and a decent stats package to make inferences about the effects–specific to oneself–of many of life’s small decisions. Many of the inferences would be obvious and well-known: sleeping very little makes you sluggish; eating carrots makes you feel virtuous; talking with dear old friends makes you elegiac, reflective, and happy.

For a device that would track lots of bio-indicators automatically and make it easy to track food intake, exercise info, and subjective variables on the fly, I doubt I’d blink about paying $10,000. Such a device would give me far better tools for enhancing my own productivity and well-being. Maybe my dear old friends also profoundly believe in me, motivating me to do more good; those carrots can give me spates of indigestion, making them less virtuous; and blogging occasionally loosens the chains and accelerates my other writing. I’d like to run the stats, controlling for daylight hours, age, the weather, the number of seminars I’ve been attending, and my overall workload, see the results, and adjust accordingly. Explicit experimentation could come soon after. Just a 1% increase in productivity would make the gadget pay well within my lifetime.

Certain groups have short shrift.  In part this may be because they face hostile social circumstances; in part it may be because they continue to suffer the consequences of hostile historical circumstances.

Hostile historical circumstances are likely to affect some groups more than others.  Specifically, groups that match and reproduce internally (for whatever reason) are likely to experience more persistence than groups that mix.  This innocuous observation has an important implication:  because (in the West, at least) the sex ratio is close to 1, inequality  between men and women can be wiped out in a single generation.  If, at some remarkable point in time, everyone in the population switches from believing in gender discrimination to believing in gender non-discrimination, the next generation to be born will be composed of sons and daughters whose parents choose to treat them equally.

This implication contrasts with the observation’s implications for racial inequality, for example.  Reproductive matching within racial groups perpetuates disparity.

Though transit passengers have to go through immigration and customs at the Halifax Airport, all the rest more than made up:

• Going back through security, there was no line. I repeat this astonishing fact: I walked directly up to the x-ray machine.
• After going through security, I went through US immigration. How brilliant to run the checks before departure!
• Wi-fi is proudly supplied free by the airport.
• At the Spirit of the Maritimes pub they happily brewed my decaf coffee fresh. I write this from their high counter facing the runways and pines beyond, with mottled cotton-ball clouds drifting across half the sky, and bright blue in the other half, down to the distant mother-of-pearl horizon.

The New York Times is running a series of articles on environmental degradation in China.  The newest feature (perhaps others too?) is available in Mandarin translation, as both text and audio.

London’s restaurant Archipelago might even have some surprises for foodies from Guangzhou. Surrounded by art and trinkets from around the world (which the menu mentions are for sale), I sat on a tropical throne during dinner there on October 3.

Service was slow but meticulous. Our waiter suggested an inexpensive Malbec that was both excellent and excellent with our food. Without his help, pairing a wine would have been a challenge…

For appetizers we had peacock and crocodile. The former was ground and shaped into a soft, moist meatball/fritter. The latter, the highlight of the evening, was wrapped in a vine leaf and grilled. With a texture between a scallop and the most succulent chicken, the crocodile slipped apart in my mouth.

Our mains of zebra and kangaroo were quite good, but tasted like (sliced) turkey and (cubed) beef. Both were perfectly paired with their vegetables. For dessert we settled for the “chocolate fix,” since they were out of the chocolate-covered scorpions.

In the UK, prices for broadband contracts are generally quoted in terms of an introductory rate and a post-introductory rate. For example, the twelve-month version of BT’s “Option 1″ costs 12.99 for the first three months and 17.99 thereafter. This structure is notable because it pertains to FIXED TERM CONTRACTS. Most of the economics literature on behavioral contract theory, stemming from the brilliant paper of Stefano Dellavigna and Ulrike Malmendier, has focussed on cases where consumers have post-adoption choices about service use. For example, credit card adopters can decide how much to borrow; cell phone adopters can decide how many minutes to talk; gym members can decided how often to work out. In the UK broadband case, subsequent prices are unconditional on use: They are merely the way the firms partition the annual contract price into installments.

BT is not unusual in quoting its contracts in these terms. AOL UK, Tiscali, and Virgin are included in its company (though not TalkTalk and Orange). The quotes generally have a few features:

• The introductory period tends to be 3 months for 12 month contracts and 6 months for 18 month contracts.
• The introductory monthly rate is 20-50% less than the post-introductory monthly rate.
• Firms generally require that early termination results in responsibility for payment of all the contract’s remaining installments.

As I see it, there are two main reasons firms may offer contracts structured this way. First, consumers may be more liquidity constrained at the time of adoption than later during the contract term. However, it seems implausible that differences of a few pounds from month to month, within a given year, would make a difference for the typical consumer.

The second reason strikes me as the correct one: firms want to confuse consumers about the true price of the offered contracts. Firms often advertise the introductory rate, and many of the price-comparison websites report this rate despite its irrelevance.

Two questions come to mind. First, given the way (boundedly rational) consumers make decisions about contracts, how should monopolists and competitive firms design their installments? For example, why is it that we don’t see offers like “FIRST MONTH FREE! Next three months only 4.99! Last 69 weeks 39.21.”  Maybe then termination rates would rise, and enough consumers would get irritated to decrease brand karma.  Also, too much complexity could cause consumers to throw up their hands and turn to a competitor.  (Some consumers might also notice a rip-off when confronted with one.)

The second question I find interesting is how regulators should act in these markets.  For example, should there be limits on how long a non-renegotiable contract consumers can sign to?  Should firms be required to quote their contract offers’ total annual costs?  (Certainly, extended agreements shouldn’t be prohibited entirely, because firms face fixed costs of signing up new customers, which must be recouped over time.)

My feeling on the second question is that regulators should require the most prominent advertised price to be the total price for the duration of the contract.  If the firm wants to offer financing (an installment loan), I suppose it’s fine to let them arrange that offer however they wish– though I would probably end up advising everyone to pay up-front if possible, since installment credit is usually very expensive.  Alternatively, (and almost equivalently) regulators could prohibit contracts that ex ante specify varying payments for materially identical services, forcing the broadband providers to advertise only the weighted averages of their streams of monthly prices.